Nintendo Predicts First Annual Loss in 30 Years on Strengthening Yen, 3DS

By Naoko Fujimura and Masatsugu Horie -
Oct 27, 2011

Nintendo Co., the world’s largest
maker of video-game machines, forecast its first annual loss in
at least 30 years after the yen reached a postwar high and the
new 3DS console had weaker-than-expected sales.

The net loss may be 20 billion yen ($264 million) for the
year ending in March, compared with a previous projection for a
20 billion-yen profit, Kyoto, Japan-based Nintendo said in a
statement yesterday. That compared with the 12.2 billion-yen
average profit of 22 analysts’ estimates compiled by Bloomberg.

Nintendo, which gets about 80 percent of its revenue from
the Americas and Europe, is predicting lower profit after the
yen gained against the dollar and surged to a decade high
against the euro, trimming the repatriated value of overseas
sales. President Satoru Iwata cut the price of the 3DS by 40
percent in August as gamers flock to Apple Inc. (AAPL)’s iPhone and
iPad, and Facebook Inc.’s website.

“Nintendo faces a very harsh time now,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd.,
which manages $28 billion of assets from Tokyo. “Competition in
the video-game industry is getting severe, and Nintendo must
fight for customers who are using smartphones and tablets.”

The full-year sales forecast was cut to 790 billion yen,
compared with an earlier forecast for 900 billion yen, according
to yesterday’s statement. Operating profit in the 12 months
ending March 31 may be 1 billion yen, lower than the 35 billion
yen predicted earlier.

Weaker Demand

“We are cutting costs steadily and plan to release major
titles seamlessly” to recover earnings, Iwata said at a press
conference in Osaka, Japan.

The console maker hasn’t reported a full-year net loss
since 1981 when it began releasing consolidated earnings,
according to data on the company’s website.

Nintendo fell 0.6 percent to 11,110 yen at the close of
trading in Osaka yesterday, taking the year-to-date decline to
53 percent. It declined 1.6 percent to $17.90 in New York.
Sixteen of the 23 analysts with a rating on the company in the
past year recommend investors “hold” the stock, while two have
“sell” and five have “buy.”

“Sales of Nintendo DS hardware and Nintendo 3DS software
were weaker than expected,” the company said in the statement.
“In addition, the yen appreciation was beyond expectation.”

Rising Yen

Nintendo had a 52.4 billion-yen foreign exchange loss in
the first six months of the fiscal year that began April 1,
according to the statement.

The company based its second-half forecast on exchange
rates of 77 yen per dollar and 106 yen per euro, changing them
from 80 yen and 115 yen, respectively. The yen gained 13 percent
against the euro last quarter, while extending its value against
the dollar by 4.5 percent, according to data compiled by
Bloomberg.

Nintendo also reported a first-half loss of 70.2 billion
yen, wider than the 2 billion yen loss a year earlier.

The company kept the sales forecast of the 3DS model at 16
million units, it said. Nintendo sold 3.07 million units of the
3DS, released in February, in the first half.

Rival Sony Corp. (6758) will outline sales of its handheld PSP
console next week. In July, it forecast sales of 6 million for
the year ending March 31.

“We expect 3DS sales will surge at a stretch toward the
end of this year,” based on the recent sales trend, Iwata said.

Sony, Microsoft

Sales of software titles for the 3DS may total 50 million
units this fiscal year, down 29 percent from the company’s
previous estimate of 70 million, Nintendo said.

Nintendo cut the price of the 3DS to 15,000 yen from 25,000
yen in Japan and to $170 from $250 in the U.S. to help regain
“sales momentum,” Iwata said in July. The 3DS allows users to
see 3-D images without wearing special glasses.

Sony, based in Tokyo, plans to introduce the PlayStation
Vita portable player this year.

In June, Sony said the PSP Vita will sell from $249 in the
U.S., 249 euros ($359) in Europe and 24,980 yen in Japan. The
handheld game player will feature a 5-inch display and a rear
touch pad.

Sony, Nintendo and Microsoft Corp. (MSFT), the Redmond,
Washington-based maker of the Xbox 360 and Kinect devices, are
confronting new competitors in the gaming industry who are
reshaping the field.

They include Cupertino, California-based Apple, which
estimates it’s sold more than 200 million mobile devices capable
of downloading and playing games. Its App Store offers more than
100,000 game and entertainment applications for the iPad, iPhone
and iPod Touch.

Nintendo plans to introduce the Wii U console as a
successor to its bestselling Wii model after June 2012, Iwata
told reporters. The Wii U controller has a front-facing camera,
a 6.2-inch touch screen, shoulder firing pads, an expansion slot
and game controls on a flat pad.

Users will be able to wirelessly connect to the console and
shift content between a large screen in the living room and the
smaller screen.